[clue-talk] oil...

[Nate Duehr]

On Nov 1, 2008, at 2:29 AM, Brian Gibson wrote:

> You mean like the land they already own, but don't drill it because  
> they say it's too expensive to drill there?  Seriously, I'm not  
> against additional drilling either, but the USGS survey not  
> withstanding, we currently still consume more oil than we could ever  
> hope to produce domestically.

I just had a chat with a person who schedules five U.S. refinery's  
production schedules.  Not an exec... a managing accountant/scheduler  
at a small refinery-only oil company.

(The conversation started with... "Who benefits from this?" and I send  
a copy of the USGS link.  I was more interested in finding out who the  
producers in the area were so I could INVEST in them -- yes people  
forget that, if they don't like oil company profits they can BUY them  
and spend the money on whatever they want to -- and the person got  
upset that three large producers up there are making their execs  
exorbitantly rich.  They're also in the emotional "limit their  
profits" camp, I guess.  Either way, now I can watch the stocks and  
dividends being paid by the producers and decide for myself after  
doing my homework about who's going to "win" this internal battle to  
provide crude to the local refineries.)

Their concern right now is that the oil already coming from that  
particular discovery in the Dakotas is outstripping the demand at the  
refineries right now, and there are a few companies pumping from there  
who are filling ALL the demand for the refineries in the area at such  
a low price, the small suppliers are once again going out of business,  
now that oil has fallen back to $70/barrel.

Interesting, isn't it?  They're very concerned that they're "pissing  
off" their small suppliers of crude up there, and the person I talked  
to is a person who likes to help the small guy... but the economics of  
it is that they literally "don't know what to do with all the oil  
that's being delivered" to those area refineries serviced from the  
pipelines that come out of there.

There's no shortage of oil looking for a place to be refined into  
product up there, and no shortage of innovative ways to get at it...  
yet.  There *is* a shortage of refinery capacity, since the U.S.  
hasn't had a company build a new refinery since the 1970's.  But  
that's a long complex story of government regulation and insurance.   
(When prices were high, the refineries were stuck in a classic "short  
squeeze" type of thing, and this same person was moaning that they  
couldn't make money, but the production and exploration companies were  
rolling in it.  The normal back and forth of that business.)

>  It's high time Big Oil loses its government subsidies and they get  
> reapplied to energy industries that can benefit more from them.  Oil  
> prices go down most dramatically as a result of less demand, and one  
> way is use less of it, another is to use it more efficiently, and  
> lastly is to have it compete against other forms of energy.  Let  
> demand determine the best allocation of all energy use, but when you  
> don't have options, it's either you go without or you go with the  
> defacto standard.


Which subsidies?  I hear that a lot, but I seem to recall that  
government REGULATION cost us a hell of a lot more than we ever saw in  
subsidies on a well by well basis.  If there was any subsidy it was  
also usually aimed at keeping SMALL producers going, and the larger  
companies would LEASE that well as a way to hedge down their costs and  
the little guy was glad they didn't have to deal with the details of  
getting a truck to the well-head, gravity-testing and other chemical  
testing of the oil coming out, water separation, etc... their costs  
went down and their profit went up if a large oil company wanted to  
lease their well's production away from them.)

The whole system was based on delivering crude products at the LOWEST  
COST, since there were (back then) about six other companies who'd  
sell their gas and other petroleum products cheaper if we didn't.

Since the group I was in was the delivery branch from well to  
refinery, so to speak, and ran the pipelines, the trucks, etc... yes,  
they tried to make money by looking for a difference in price between  
what they bought the crude for and what they could get the refinery to  
pay for it, by tanking it, swapping different types of crude with  
companies that needed different types to make their refineries  
happy... etc.  So the transport division made their money in trades...  
not in the transport costs.  Transport was cheap.  (The one major  
exception was safety accidents.  We had a couple of guys killed  
cleaning a pipeline when a "pig" got stuck and they didn't monitor  
their pressure gauges, and EVERYONE was down for many weeks over that  
one, even us "office weenies".  The human costs in a safety-related  
accident were way too high, and we only had two people die... the  
equipment was all outfitted with a plethora of alarms for that odd- 
ball condition immediately.)

(In California, things were REALLY strange... talk about government  
headaches.  ALL pipelines were deemed "common carriers" and had to  
carry whatever sludge was delivered from whatever field... it made  
scheduling a nightmare, since you a) don't really want to mix crude  
types in a pipeline or you have to negotiate different prices coming  
out after "co-mingling", and b) you don't want certain types of crap  
in your pipelines since it means downtime and cleaning... kinda like  
allowing spammers to live in your data center.  Good money for a  
while, but you'll get into problems later.  California pipelines were  
always the most highly regulated and the most expensive to run.  And  
the people of California apparently want it that way, since their  
legislators voted for all of that.  Ever see California's gas prices  
lower than anyone else's?)

> I just don't understand this love affair with oil.  This singular  
> dependence of a homogeneous energy mix is a far greater national  
> security and economic threat than all the other security theater  
> initiatives against drugs, terrorists, and the other boogeymen out  
> there.  Because our recent dealings with Iraq and Georgia are really  
> about exporting democracy and securing the rights of non-US citizens.

That's the problem.  It's not a "love affair", there's no emotionality  
involved, at least here personally.  It's just the cheapest way to get  
stuff done for me.  I've looked at the costs of putting solar panels  
on the house... that technology is just not there yet.  Can't get a  
decent ROI out of it.  As far as oil goes, my laptop is made out of  
petroleum products (plastic), food is regularly packaged in plastic,  
the TV, the refrigerator, some of the clothes, the siding on the  
house, the paint on the walls, the electronics... it's REALLY hard to  
find things in your home/life that are NOT based off of petroleum.   
Forget about the gasoline to drive... and look around at what you  
actually buy, and you'll see it's used in so many things.

I challenge anyone who thinks oil company profits are too high to stop  
using ANYTHING based on a petroleum product.  You can start by turning  
off your computer and never booting it again.

The reality is, our modern standard of living is based on it.  That's  
not emotional, that's just fact.

If someone wants to "lower oil company profits" by demanding that they  
spend X amount of dollars on development of alternatives, I *might* be  
able to live with that, but let's face it... it's not their business,  
and they'll never do as good a job of it as a motivated independent  
company focused on the new technology.  (If they BUY that independent  
company and HIDE their research when they find a cost-effective  
solution, now THAT's evil/wrong and I do see where government can step  
in at that point and say "no".  Oil companies HAVE done that before,  
and that's truly evil.  From a pure business play, it's the "correct"  
move strategically, but it's wrong in so many other ways -- that's  
where our regulators should be focused.)

I guess maybe if big oil isn't taxed to death, I can use the profits  
from buying their stock to pay for an early-adopter inefficient solar  
system and see if it can survive Colorado weather for 10 years.   
(GRIN)    Tax me and the companies I'm invested in to death, and I  
most certainly won't be able to.

Speaking of taxes that are coming:

Raise the Capital Gains tax?  Go for it.  Watch people like me go  
looking for losses to take as tax write-offs and keeping my money OUT  
of taxable investments that really spur growth and innovation.  Keep  
the recession going, it makes you look like a savior when the market  
finally turns.

And even though I'm not an employer, watch the small businesses drop  
their staff like hot-potatoes and switch from "growth" mode to  
"survival" mode under higher taxes.  Obama's "anyone over $250,000 a  
year" includes just about every small business owner I know.  They'll  
all either drastically cut staff, or go out of business to hold on to  
what they've earned.  I'm sure of it, since I've asked them what their  
plans are.

--
Nate Duehr
nate at natetech.com